Visa's 'digital dollar' patent application raises central bank privacy issues
Visa's blockchain/digital currency patent application shines new light on an ongoing evolution of blockchain.
The transition to blockchain-based digital formats is not a new development. Most large institutions and incumbent payments platforms have been exploring blockchain for years and, as can be seen by this filing, quietly building out their capabilities and carefully planning their entry into the space. If anything, this demonstrates that the incumbents recognize that the transition to blockchain-based digital formats is a matter of fact rather than theory.
The full impact of Visa's move development remains to be seen, as central bank digital currencies (CBDCs) are complex animals that require collaboration across many government and private sector entities, and a patent filing of this nature may often be defensive in intent. Nonetheless, it points to three important developments that we can confidently anticipate.
First, the pace of development of blockchain-based payments, already accelerated by the COVID-19 situation, will pick up additional steam on this news. Second, we are well into a period of significant consolidation in the space and Visa’s announcement will likely increase the sense of urgency felt by both acquirers and targets. Finally, and perhaps most importantly, this will further solidify the legitimacy of digital assets in the global financial markets.
The news may also have implications for plans around CBDCs, by validating state-led CBDC initiatives and at the same time sharpening the focus on the alternative methods of deploying CBDCs. Visa’s patent filing, for example, contemplates a “sunset” of physical currency (defined in the filing as “the removal of physical currency from circulation in the fiat currency system”).
While this is not an approach that is universally embraced by policymakers and certainly carries with it some significant social implications, it does highlight the challenges of accounting for the two different forms of currency. Similarly, Visa’s proposed serialization of the digital dollar will further intensify the debate over privacy issues raised by CBDCs.